US Dollar undergoes biggest decline in over a week ahead of ECB

The US Dollar trades softer across the board on Wednesday.
US Federal Reserve Chairman Jerome Powell said in its testimony that rate cuts are coming.
The US Dollar Index snaps an important support, looking bleak ahead of the ECB decision and NFP data.

The US Dollar (USD) is sinks lower this Wednesday with ADP and JOLTS data pointing to a tighter job market, which was one of the criteria for the US Federal Reserve to consider before starting to cut. By a sheer luck, the President of the US Federel Reserve Jerome Powell delivered a statement before Congress. Powell mentioned that cuts are coming though the Fed wants be sure that inflation is comfortably low enough.

On the economic calendar front, all data is out of the way while US Fed Chairman Powell is taking question in Congress. Fast forward to Thursday where markets will here from the other side of the Atlantic Ocean with the European Central Bank rate decision. A good moment for markets to reflect and look for clues that might hint when the Fed will start cutting as well.

Daily digest market movers: job market tighter

At 12:00 GMT, the weekly Mortgage Applications number was released. The previous number was a 5.6% declin, with an increase to 9.7% for this week.
ADP has released its Private Employment number for, and saw the actual number come in at 140,000 in stead of the expeted 150,000. The previous number got revised up from 107,000 to 110,000.
Wholesale Inventories for January shrunk further from -0.1% to -0.3%.
JOLTS Job Openings data for January came in tighter as expected, heading from 9.026 million to 8.863 million job openings.
US Federal Reserve Chairman Jerome Powell has made his statement before Congress. The Fed Chairman repeated that the Fed remains data dependend and that the Fed wants to see inflation further abate before considering to cut.
The Fed speak for this Wednesday does not stop with Powell. San Francisco Fed President Mary Daly will be speaking around 17:00 GMT, followed by Minneapolis Fed President Neel Kashkari around 21:15 GMT. In between both speakers, the Fed’s Beige Book will be released as well.
Equities are pushing forward in their recovery and are seeing accelerated gains in the ADP print aftermath. All US indices are up around 0.5%.
According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97%, while chances of a rate cut stand at 3%.
The benchmark 10-year US Treasury Note trades around 4.11%, lowest level for this week

US Dollar Index Technical Analysis: Job tightness turns the tide ahead of ECB

The US Dollar Index (DXY) is seeing traders getting a bit ahead of themselves with pressure building on a pivotal support level in the DXY. The 200-day Simple Moving Average at 103.73 is being snapped again, already the fifth time in three weeks. With the actual three main events still to take place, it looks like a few traders fear missing out and might get caught up on the wrong side of the trade with their prepositioning.

The 100-day Simple Moving Average (SMA) near 103.88 got snapped on Tuesday, though it still needs a daily close above it to deliver a bullish signal. Should the US Dollar be able to cross above it, 104.60 is the next first target ahead. A firm step beyond there 105.88 comes into reach, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could come back into scope.

Looking down, the 200-day Simple Moving Average at 103.73 is being snapped again. Adding the element that it has not seen a daily close below it last week, it showcases its importance. The 200-day SMA should not let go that easily, so a small retreat back to that level could be more than granted. Ultimately, should it lose its force, prices could fall to 103.22, the 55-day SMA, before testing 103.00.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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